Progressive Formulary Apportionment: The Case for 'Amount D'

Abstract

In this article, we introduce progressive formulary apportionment and urge that it be implemented within OECD’s Pillar One by establishing a new taxing right, which we call “Amount D.” Unlike traditional formulary apportionment, in which the rights to tax businesses are allocated on the basis of the transactional attributes of the firm—such as the firm’s payroll, assets, or sales—progressive formulary apportionment allocates at least some taxing rights on the basis of states’ economic well-being, with worse-off countries receiving more valuable rights, all else equal. We argue that progressive formulary apportionment has desirable distributional and efficiency characteristics and that it could be implemented seamlessly within the emerging architecture under Pillar One. The particular implementation that we propose, Amount D, is allocated to developing countries regardless of whether there is a nexus between the taxed firm and the taxing state.